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2015 (6) TMI 765 - AT - Income TaxExistence of fixed place PE - fixed place PE in Mumbai treating its liaison office as such for the purpose of taxing royalties received from Hyundai Construction Equipment India (P) Ltd. (HCEIPL) - Held that - The authorities below has simply followed its orders for earlier assessment years on the issue of treating the Mumbai Liasioning Office as PE. However, to decide the issue as to whether Mumbai Liaisoning is PE for the purpose of HCEIPL as well for the purpose of taxing royalties received from HCEIPL and interest earned on delayed payment of royalty as business income, verification of the above aspects of the facts/contentions raised by the Learned AR is required to be made afresh to meet out the ends of justice. We thus set aside the matter to the file of the Assessing Officer to decided the issue raised afresh after affording opportunity of being heard to the assessee under the above stated background. - Decided in favour of assessee for statistical purposes. Bifurcation of income from GMR Project in item of inside India and outside India - Whether in absence of any allegation that the supply of spares was not made at arm s length price or that the price for the goods included any element of service rendered by the Chennai PE in India, there is nothing left for attribution to the PE? - Held that - Tribunal for the assessment year 2007-08 on the issue in the case of assessee itself held that the contracts are divisible. The receipts pertaining to designing, fabrication and supply of material, the activities carried out outside India is not taxable in India. Respectfully following this decision on identical issue in the assessment year under consideration we decide the issue raised relating to MUT pipeline project, MSP platform project, of ONGC and GMR (operation and maintenance contract) projects in favour of the assessee with this finding that the outside receipts pertaining to designing, fabrication and supply of material, activities carried out outside India is not taxable in India. So far as taxability of receipts pertaining to HMI (sub station) of Hyundai Heavy Industries Ltd. is concerned the matter is set aside to the file of the AO to examine the issue in relation to these project in view of finding of the Tribunal on the issue in relation to the above stated three projects and decide the issue accordingly after affording opportunity of being heard to the assessee. - Decided partly in favour of assessee for statistical purposes. Taxing the entire revenue pertaining to outside India operations as income of the assessee - Held that - These grounds have been covered by the Tribunal in the case of assesee itself for the assessment year 2007-08 to hold that the receipts pertaining to designing, fabrication and supply of material, the activities carried out outside India is not taxable in India. Other issues raised in these grounds have become infructuous. Deduction of service tax - Held that - The assessee need to explain that no expenses in relation to service tax are debited in the profit and loss account. As assessee has filed information on service tax. The matter is thus set aside to the file of the Assessing Officer to decide the issue afresh after giving opportunity to the assessee to explain that no expenses in relation to service tax are debited in the profit and loss account. Interest under section 234B - Held that - In the present case, assessee has full role in lower deduction of tax, as it had obtained order section 197 of the Act at lower rate and provided to GMR. In such a case, the payer GMR was not at fault and no order under section 201(1) can be passed in that case as they deducted tax as per order under section 197 of the Act. As the tax was not paid correctly and there was a shortfall in payment of tax, therefore, the interest under section 234B is payable by the assessee.
Issues Involved:
1. Assessing total income higher than returned income. 2. Passing laconic order u/s. 144C without application of mind. 3. Attribution of income from supply of spares and tool-kits to Chennai PE. 4. Attribution of entire gross revenue from supply of spares to Chennai PE. 5. Determining profit of PE from operations inside India contrary to show-cause notice. 6. Arbitrarily determining profit from operations inside India. 7. Treating Mumbai Office as a fixed place PE for taxing royalties from HCEIPL. 8. Taxing royalties from HCEIPL as business income. 9. Taxing interest from HCEIPL as business income instead of income from interest. 10. Taxing reimbursement of Service Tax as business income. 11. Not allowing deduction of Service Tax reimbursement under sec. 43B. 12. Levying interest under sec. 234B. Issue-wise Analysis: Issue 1: Assessing Total Income Higher than Returned Income The assessee challenged the assessment of total income at Rs. 21,17,72,916 against the returned income of Rs. 4,62,51,710. The tribunal did not provide an independent adjudication for this issue as it was considered general in nature. Issue 2: Passing Laconic Order u/s. 144C The assessee argued that the order u/s. 144C was passed without proper application of mind and in contravention of judicial principles. This issue was also considered general and did not require independent adjudication. Issue 3 & 4: Attribution of Income from Supply of Spares and Tool-kits to Chennai PE The tribunal examined whether the income from the supply of spares and tool-kits from Korea on an FOB basis should be attributed to the Chennai PE. The assessee contended that the supply of spares was not taxable in India as it was carried out outside India. The tribunal found that the authorities had followed their orders from earlier years without considering the ITAT's decision, which had overruled such attribution. The matter was remanded to the Assessing Officer for fresh verification. Issue 5 & 6: Determining Profit of PE from Operations Inside India The tribunal addressed whether the profit from operations inside India was determined arbitrarily. The assessee argued that the income should be taxed as business profit under sec. 44DA, as shown in the show-cause notice. The tribunal noted the need for consistency with earlier years' ITAT decisions and remanded the matter for fresh adjudication. Issue 7 & 8: Treating Mumbai Office as a Fixed Place PE for Taxing Royalties from HCEIPL The tribunal considered whether the Mumbai Liaison Office constituted a fixed place PE under Article 5 of the DTAA for taxing royalties from HCEIPL. The assessee argued that the technology and know-how were provided in Korea, not India. The tribunal found that the authorities had followed earlier orders without considering the ITAT's decision, which had overruled such attribution. The matter was remanded for fresh verification. Issue 9: Taxing Interest from HCEIPL as Business Income The tribunal examined whether interest from HCEIPL for delayed payment of royalties should be taxed as business income or as income from interest under Article 12(2) of the DTAA. The assessee argued that it should be taxed as income from interest. The tribunal remanded the matter for fresh verification in light of earlier ITAT decisions. Issue 10 & 11: Taxing Reimbursement of Service Tax as Business Income The tribunal addressed whether the reimbursement of Service Tax should be taxed as business income and whether the deduction of the same amount should be allowed under sec. 43B. The matter was remanded to the Assessing Officer to decide afresh after giving the assessee an opportunity to explain that no expenses in relation to Service Tax were debited in the profit and loss account. Issue 12: Levying Interest under sec. 234B The tribunal considered the additional ground regarding the levy of interest under sec. 234B. The assessee argued that the entire income was subject to tax deduction at source, and there was no liability to pay advance tax. The tribunal remanded the matter to the Assessing Officer to decide afresh in light of the ITAT's decision for the assessment year 2007-08 and the jurisdictional High Court's decision. Conclusion: The tribunal remanded several issues to the Assessing Officer for fresh verification and adjudication, emphasizing the need for consistency with earlier ITAT decisions and proper consideration of facts. The appeal was allowed for statistical purposes.
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